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Buyer-Seller Relationships in International Trade: Evidence from U.S. States' Exports and Business-Class Travel

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  • Cristea, Anca D.

Abstract

International trade has become increasingly dependent on the transmission of complex information, often realized via face-to-face communication. This paper provides novel evidence for the importance of in-person business meetings in international trade. Interactions among trade partners entail a fixed cost of trade, but at the same time they generate relationship capital, which adds bilateral specific value to the traded products. Differences in the face-to-face communication intensity of traded goods, bilateral travel costs and foreign market size determine the optimal amount of interaction between trade partners. Using U.S. state level data on international business-class air travel as a measure of in-person business meetings, I find robust evidence that the demand for business-class air travel is directly related to volume and composition of exports in differentiated products. I also find that trade flows in R&D intensive manufactures and goods facing contractual frictions are most dependent on face-to-face meetings. The econometric identification exploits the cross-state variation in bilateral exports and business-class air travelers by foreign country and time period, circumventing any spurious correlation induced by cross-country differences driving aggregate travel and trade patterns.

Suggested Citation

  • Cristea, Anca D., 2011. "Buyer-Seller Relationships in International Trade: Evidence from U.S. States' Exports and Business-Class Travel," MPRA Paper 30347, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:30347
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    More about this item

    Keywords

    state exports; air travel; fixed export cost; face-to-face communication; relationship intensity; tacit knowledge;

    JEL classification:

    • R4 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Transportation Economics
    • F1 - International Economics - - Trade
    • O3 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights

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